SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file number
September 30, 1999 0-24806
U.S. XPRESS ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 62-1378182
(State or other jurisdiction of (I.R.S. employer identification no.)
Incorporation or organization)
4080 Jenkins Road (423) 510-3000
CHATTANOOGA, TENNESSEE 37421 (Registrant's telephone no.)
(Address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of September 30, 1999, 11,497,448 shares of the registrant's Class A
common stock, par value $.01 per share, and 3,040,262 shares of Class B common
stock, par value $.01 per share, were outstanding.
Page 1 of 20
U.S. XPRESS ENTERPRISES, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements............................ 3
- ------
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1999 and 1998..................... 4
Consolidated Balance Sheets as of September 30,
1999 and December 31, 1998................................... 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998................ 7
Notes to Consolidated Financial Statements................... 8
Item 2. Management's Discussion and Analysis of
- ------ Financial Condition and Results of Operations................ 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 19
- ------
SIGNATURES................................................... 20
2
U.S. XPRESS ENTERPRISES, INC.
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The interim consolidated financial statements contained herein reflect all
adjustments that, in the opinion of management, are necessary for a fair
statement of the financial condition and results of operations for the periods
presented. They have been prepared by the Company, without audit, in accordance
with the instructions to Form 10-Q and the rules and regulations of the
Securities and Exchange Commission and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
Operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. In the opinion of management, all adjustments necessary for a
fair presentation of such financial statements have been included. Such
adjustments consisted only of items that are of a normal recurring nature.
These interim consolidated financial statements should be read in
conjunction with the Company's latest annual consolidated financial statements
(which are included in the 1998 Annual Report to Stockholders in the Company's
Form 10-K filed with the Securities and Exchange Commission on March 31, 1999).
3
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998
------------------ -------------------
Operating Revenue $180,702 $150,165 $518,406 $412,507
-------- -------- -------- --------
Operating Expenses:
Salaries, wages and benefits 69,863 59,553 202,143 167,976
Fuel and fuel taxes 26,517 18,818 71,143 55,948
Vehicle rents 14,665 7,772 40,137 23,605
Depreciation & amortization, net of gain on sale 7,389 6,421 21,496 17,606
Purchased transportation 20,916 15,865 60,421 39,527
Operating expense & supplies 11,980 10,346 33,020 26,959
Insurance premiums & claims 7,769 5,613 19,859 13,903
Operating taxes & licenses 3,705 2,608 10,524 6,919
Communications & utilities 3,287 2,576 9,069 6,745
General & other operating 8,073 8,096 24,132 21,918
Non-recurring charge -- litigation settlement -- -- 1,250 --
-------- -------- -------- --------
Total operating expenses 174,164 137,668 493,194 381,106
======== ======== ======== ========
Income from Operations 6,538 12,497 25,212 31,401
Interest Expense, net 3,105 2,698 9,374 6,659
-------- -------- -------- --------
Income before income taxes 3,433 9,799 15,838 24,742
Income Taxes 1,375 3,920 6,337 9,897
======== ======== ======== ========
Net Income $ 2,058 $ 5,879 $ 9,501 $ 14,845
======== ======== ======== ========
Earnings Per Share -- basic $ 0.14 $ 0.39 $ 0.64 $ 0.98
======== ======== ======== ========
Weighted average shares -- basic 14,733 15,143 14,870 15,077
======== ======== ======== ========
Earnings Per Share -- diluted $ 0.14 $ 0.39 $ 0.64 $ 0.98
======== ======== ======== ========
Weighted average shares -- diluted 14,783 15,226 14,945 15,176
======== ======== ======== ========
(See accompanying Notes to Financial Statements)
4
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
Assets
- ------
Current Assets:
Cash and cash equivalents $ 2,723 $ 6,613
Customer receivables, net of allowance 102,498 94,814
Other receivables 14,699 22,327
Prepaid insurance and licenses 6,695 3,411
Operating and installation supplies 5,635 5,214
Deferred income taxes 5,662 4,223
Other current assets 2,460 1,312
--------- ---------
Total current assets 140,372 137,914
--------- ---------
Property and Equipment, at cost:
Land and buildings 9,977 9,771
Revenue and service equipment 216,673 229,377
Furniture and equipment 18,648 14,864
Leasehold improvements 16,351 15,136
--------- ---------
261,649 269,148
Less accumulated depreciation and amortization (63,384) (52,221)
--------- ---------
Net property and equipment 198,265 216,927
--------- ---------
Other Assets:
Goodwill, net 70,664 64,806
Other 7,673 6,892
--------- ---------
Total other assets 78,337 71,698
--------- ---------
Total Assets $ 416,974 $ 426,539
========= =========
(See accompanying Notes to Financial Statements)
5
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Data)
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Accounts payable $ 18,643 $ 17,090
Accrued wages and benefits 10,173 6,573
Claims and insurance accruals 5,644 8,382
Other accrued liabilities 2,641 6,694
Current maturities of long-term debt 410 869
--------- ---------
Total current liabilities 37,511 39,608
--------- ---------
Long-Term Debt, net of current maturities 185,215 202,450
--------- ---------
Deferred Income Taxes 31,989 28,820
--------- ---------
Other Long-Term Liabilities 2,412 1,994
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, no shares issued -- --
Common stock Class A, $.01 par value,
30,000,000 shares authorized, 13,086,737 and 13,017,867
shares issued and outstanding at September 30,
1999 and December 31, 1998, respectively 131 130
Common stock Class B, $.01 par value, 7,500,000
shares authorized, 3,040,262 shares issued and
Outstanding at September 30, 1999 and December 31, 1998 30 30
Additional paid-in capital 104,253 103,255
Retained earnings 72,853 63,351
Treasury stock Class A (1,589,289 and 1,134,289 shares,
at September 30, 1999 and December 31, 1998) at cost (17,187) (12,866)
Notes receivable from stockholders (233) (233)
--------- ---------
Total stockholders' equity 159,847 153,667
--------- ---------
Total Liabilities and Stockholders' Equity $ 416,974 $ 426,539
========= =========
(See accompanying Notes to Financial Statements)
6
U.S. XPRESS ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
----------------------
1999 1998
--------- ---------
Cash Flows from Operating Activities:
Net Income $ 9,501 $ 14,845
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred income tax provision 3,169 4,883
Depreciation & amortization 22,332 17,498
Gain/loss on sale of equipment (836) 108
Change in receivables (1,007) (5,514)
Change in prepaid insurance (4,563) (2,473)
Change in operating supplies (172) 3
Change in other assets (3,391) (3,733)
Change in accounts payable and other accrued liabilities (8,799) (3,336)
Change in accrued wages and benefits 3,512 3,234
Other 50 43
--------- ---------
Net cash provided by operating activities 19,796 25,558
--------- ---------
Cash Flows from Investing Activities:
Payments for purchase of property and equipment (55,996) (86,044)
Proceeds from sales of property and equipment 56,850 43,879
Acquisition of businesses, net of cash acquired (1,798) (62,628)
--------- ---------
Net cash used in investing activities (944) (104,793)
--------- ---------
Cash Flows from Financing Activities:
Net borrowing (payments) under lines of credit (18,000) 169,500
Payment of long-term debt (664) (84,073)
Proceeds from exercise of stock options -- 77
Proceed from issuance of common stock, net 242 403
Purchase of Class A Common Stock (4,320) (8,656)
--------- ---------
Net cash provided by (used in) financing activities (22,742) 77,251
--------- ---------
Net Decrease in Cash and Cash Equivalents (3,890) (1,984)
Cash and Cash Equivalents, beginning of period 6,613 2,734
--------- ---------
Cash and Cash Equivalents, end of period $ 2,723 $ 750
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 9,632 $ 6,645
========= =========
Cash paid during the period for income taxes $ 6,079 $ 1,779
========= =========
(See accompanying Notes to Financial Statements)
7
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Operations
U.S. Xpress Enterprises, Inc. (the "Company") provides transportation and
logistics services through two business segments. U.S. Xpress, Inc. ("U.S.
Xpress") is a truckload carrier serving the continental United States and parts
of Canada and Mexico. CSI/Crown, Inc. ("CSI/Crown") provides transportation and
logistics services to the floorcovering industry.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and accounts
have been eliminated.
Property and Equipment
Property and equipment is carried at cost. Depreciation and amortization of
property and equipment are computed using the straight-line method for financial
reporting purposes and accelerated methods for tax purposes over the estimated
useful lives of the related assets (net of salvage value) as follows:
Buildings 10-30 years
Revenue and service equipment 3-7 years
Furniture and equipment 3-7 years
Leasehold improvements 5-6 years
Expenditures for normal maintenance and repairs are expensed. Renewals or
betterments that affect the nature of an asset or increase its useful life are
capitalized.
Earnings Per Share
The difference in basic and diluted EPS is due to the assumed conversion of
outstanding options resulting in approximately 50,000 and 83,000 equivalent
shares in the three month period ended September 30, 1999 and 1998,
respectively, and 75,000 and 99,000 equivalent shares in the nine month period
ended September 30, 1999 and 1998, respectively.
Reclassifications
Certain reclassifications have been made in the fiscal 1998 financial
statements to conform to the 1999 presentation.
3. Commitments and Contingencies
Effective January 1, 1997, the Company entered into an agreement with
Employee Solutions, Inc. ("ESI"), a Professional Employer Organization ("PEO")
in which the PEO was a co-employer with the Company for substantially all of the
Company's personnel. The PEO was responsible for
8
processing and administration of the Company's payroll, including tax reporting,
and provided group health benefits and workers' compensation coverage. On
July 20, 1998, ESI notified the Company it was terminating its agreement with
the Company. On July 22, 1998, the Company filed suit against ESI in the United
States District Court for the Eastern District of Tennessee, at Chattanooga. The
complaint alleged that ESI agreed to perform certain employer organization
services for the Company, including administration of programs related to wages,
payroll taxes, workers' compensation, employee benefit programs and other
insurance and related administration services. The Company alleged that ESI
breached its contract to provide such services and wrongfully attempted to
terminate the contract. Effective August 20, 1998, the contract with ESI
terminated and the Company assumed total control of all payroll functions. The
Company requested reimbursement of amounts wrongfully withheld by ESI, and other
contractual and punitive damages. On December 2, 1998, an agreed order was
entered submitting all matters in dispute between the parties to binding
arbitration. On May 27, 1999, prior to arbitration, a settlement agreement and
release was completed. As a result of the settlement, the Company recorded a
non-recurring charge of $1.3 million to operating expense in the quarter ending
June 30, 1999.
The Company is party to certain legal proceedings incidental to its
business. The ultimate disposition of these matters, in the opinion of
management, based in part on the advice of legal counsel, will not have a
material adverse effect on the Company's financial position or results of
operations.
The Company has letters of credit of $8,126,000 outstanding at
September 30, 1999. The letters of credit are maintained primarily to support
the Company's insurance program.
4. Acquisitions
Under the terms of the purchase agreements for acquisitions prior to 1999
and in settlement of certain contingent purchase price arrangements, the Company
incurred approximately $4.0 million of additional consideration in 1999, of
which $1.8 million was paid in cash.
Effective January 29, 1998, the Company acquired Victory Express,
Inc., a non-union truckload carrier based in Medway, Ohio, for $51 million in
cash and assumption of approximately $2 million in debt, in a transaction
accounted for by the purchase method of accounting.
Effective August 28, 1998, the Company acquired PST Vans, Inc., a non-union
truckload carrier based in Salt Lake City, Utah, for $12.3 million in cash, the
issuance of 1,036,348 shares of U.S. Xpress stock, and the assumption of $52.0
million in debt, in a transaction accounted for by the purchase method of
accounting.
The results of operations of Victory Express and PST Vans are included in
the accompanying consolidated financial statements from the dates of their
respective acquisitions. The pro forma financial information below is based on
the historical financial statements of U.S. Xpress Enterprises, PST Vans, and
Victory Express and adjusted as if the acquisitions had occurred on January 1,
1998, with certain assumptions made that management believes to be reasonable.
This information is for comparative purposes only and does not purport to be
indicative of the results of operations that would
9
have occurred had the transactions been completed at the beginning of the
respective periods or indicative of the results that may occur in the future
(in thousands, except share data).
Nine Months Ended
September 30,
------------------------
1999 1998
-------- --------
Operating revenue $518,406 $521,412
Net income 9,501 15,532
Earnings per share - basic .64 .96
Earnings per share - diluted .64 .95
Weighted average shares - basic 14,870 16,177
Weighted average shares - diluted 14,945 16,276
5. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings, unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.
As amended by SFAS No. 137, statement 133 is effective for fiscal years
beginning after June 15, 2000. A company may also implement the Statement as of
the beginning of any fiscal quarter after issuance. Statement 133 cannot be
applied retroactively. Statement 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired or substantively modified after December 31, 1997
(and, at the Company's election, before January 1, 1998).
The Statement could increase the volatility in earnings and other
comprehensive income, however, based on the Company's current and anticipated
level of derivative instruments and hedging activities, the Company does not
believe the impact would be material.
6. Operating Segments
The Company has two reportable segments based on the types of services it
provides to its customers: U.S. Xpress, which provides truckload operations and
related logistics services throughout the continental United States and parts of
Canada and Mexico, and CSI/Crown, which provides transportation and logistics
services to the floorcovering industry. All intersegment sales prices are market
based. The Company evaluates performance based on operating income of the
respective business units.
10
U.S. Xpress CSI/Crown Consolidated
----------- --------- ------------
Three Months Ended September 30, 1999
- -------------------------------------
Revenues -- external customers $165,831 $ 14,871 $180,702
Intersegment revenues 1,661 0 1,661
Operating income 5,565 973 6,538
Total assets 398,092 18,882 416,974
Three Months Ended September 30, 1998
- -------------------------------------
Revenues -- external customers $129,776 $ 20,389 $150,165
Intersegment revenues 1,528 0 1,528
Operating income 11,733 764 12,497
Total assets 413,131 21,448 434,579
Nine Months Ended September 30, 1999
- ------------------------------------
Revenues -- external customers $474,408 $ 43,988 $518,406
Intersegment revenues 3,921 0 3,921
Operating income 23,048 2,164 25,212
Total assets 398,092 18,882 416,974
Nine Months Ended September 30, 1998
- ------------------------------------
Revenues -- external customers $355,992 $ 56,515 $412,507
Intersegment revenues 4,454 0 4,454
Operating income 29,325 2,076 31,401
Total assets 413,131 21,448 434,579
The difference in consolidated operating income as shown above and consolidated
income before income tax provision on the consolidated statements of operations
is net interest expense of $3,105 and $2,698 for the three months ended
September 30, 1999 and 1998, respectively, and $9,374 and $6,659 for the nine
months ended September 30, 1999 and 1998, respectively.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
U.S. Xpress Enterprises, Inc. (the "Company") provides transportation and
logistics services through two business segments. U.S. Xpress, Inc. (U.S.
Xpress) is a truckload carrier serving the continental United States and parts
of Canada and Mexico. CSI/Crown, Inc. ("CSI/Crown") provides transportation and
logistics services to the floorcovering industry.
Results of Operations
The following table sets forth, for the periods indicated, the components
of the consolidated statements of operations expressed as a percentage of
operating revenue:
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----- ----- ----- -----
Operating Revenue 100.0 % 100.0 % 100.0 % 100.0 %
----- ----- ----- -----
Operating Expenses:
Salaries, wages and benefits 38.7 39.7 39.0 40.7
Fuel and fuel taxes 14.7 12.4 13.7 13.5
Vehicle rents 8.1 5.2 7.7 5.7
Depreciation & amortization, net of gain on sale 4.1 4.3 4.1 4.3
Purchased transportation 11.6 10.6 11.7 9.6
Operating expense & supplies 6.6 6.9 6.4 6.5
Insurance premiums & claims 4.3 3.7 3.8 3.4
Operating taxes & licenses 2.1 1.9 2.0 1.7
Communications & utilities 1.8 1.7 1.7 1.6
General & other operating 4.4 5.4 4.8 5.5
Non-recurring charge -- litigation settlement -- -- 0.2 --
---- ---- ---- ----
Total operating expenses 96.4 91.8 95.1 92.5
---- ---- ---- ----
Income from Operations 3.6 8.2 4.9 7.5
Interest Expense, net 1.7 1.8 1.8 1.6
---- ---- ---- ----
Income before income taxes 1.9 6.4 3.1 5.9
Income Taxes 0.8 2.6 1.3 2.4
---- ---- ---- ----
Net Income 1.1 % 3.8 % 1.8 % 3.5 %
==== ==== ==== ====
12
Comparison of the Three Months Ended September 30, 1999 to the Three Months
Ended September 30, 1998
Operating revenue during the three-month period ended September 30, 1999
increased $30.5 million, or 20.3%, to $180.7 million, compared to $150.2 million
during the same period in 1998. U.S. Xpress revenue increased $36.1 million, or
27.8%, due primarily to a 26.0% increase in revenue miles and increase in
average revenue per loaded mile to $1.195, versus $1.177 in 1998, due
principally to per mile rate increases. Weighted average tractors increased to
4,693 during the three-month period ended September 30, 1999, compared to 3,582
during the same period in 1998, due in part to the acquisition of PST Vans in
August 1998. CSI/Crown revenues decreased $5.5 million or 27.1% resulting from a
program to eliminate unprofitable revenues, including the closure of certain
non-performing facilities.
Operating expenses represented 96.4% of operating revenue for the three
months ended September 30, 1999, compared to 91.8% during the same period in
1998.
Salaries, wages and benefits as a percentage of revenue were 38.7% during
the three months ended September 30, 1999, compared to 39.7% during the same
period in 1998. The decrease was primarily attributable to an increase in the
number of owner-operators to 501 at September 30, 1999, compared to 432 at
September 30, 1998. All owner-operator expenses are reflected as purchased
transportation. CSI/Crown salaries, wages and benefits decreased 29.9% during
the three months ended September 30, 1999, compared to the same period in 1998
due to facility closures described above and efficiencies gained through a new
bar-coding process.
Fuel and fuel taxes as a percentage of operating revenue were 14.7% during
the three months ended September 30, 1999, compared to 12.4% during the same
period in 1998. The increase was primarily due to an approximate 13% increase in
the average cost per gallon of fuel, the effect of which was partially offset by
the increased use of owner operators who are responsible for their fuel expense.
The Company's exposure to increases in fuel prices is managed by fuel surcharges
to its customers and, on a limited basis, by hedges against fluctuations in fuel
prices.
Vehicle rents as a percentage of operating revenue were 8.1% during the
three months ended September 30, 1999, compared to 5.2% during the same period
of 1998. The increase resulted from increased operating leases for tractors to
3,385 and trailers to 4,667 at September 30, 1999, compared to 1,920 leased
tractors and 2,190 leased trailers at September 30, 1998. Depreciation and
amortization as a percentage of operating revenue was 4.1% for the three months
ended September 30, 1999, compared to 4.3% during the same period of 1998. The
Company includes gains and losses from the sale of revenue equipment in
depreciation expense. Net gains from the sale of revenue equipment for the three
months ended September 30, 1999 were $.1 million, compared to a loss of $.4
million for the same period in 1998. Overall, as a percentage of operating
revenue, vehicle rents and depreciation were 12.2% during the three months ended
September 30, 1999, compared to 9.5% during the same period in 1998. This
increase was primarily due to a reduction in equipment utilization (revenue per
tractor per week) in the three month period ended September 30, 1999, compared
to the same period during 1998 and an increase in the ratio of leased revenue
equipment
13
versus owned equipment. Increasing the ratio of leased to owned revenue
equipment effectively shifts financing expenses from interest to "above the
line" operating expenses.
Purchased transportation as a percentage of operating revenue was 11.6%
during the three months ended September 30, 1999, compared to 10.6% during the
same period in 1998. The increase was primarily due to an increase in the
average of the Company's owner-operator fleet to 475 for the three month period
ended September 30, 1999 compared to 149 for the same period in 1998. Owner
operator miles increased from 7.7 million during the three-month period ended
September 30, 1998 to 17.4 million miles for the same period in 1999. The effect
of the increase in owner operators was offset by a $2.3 million decrease in
purchased transportation related to the decrease in revenue and related
purchased transportation by CSI/Crown.
Insurance premiums & claims as percentage of operating revenue was 4.3%
during the three months ended September 30, 1999, compared to 3.7% during the
same period in 1998. The increase results from an increase effective January 1,
1999 in cargo insurance cost and increases experienced in physical damage and
liability insurance cost related principally to the average cost and frequency
of claims below the deductible amounts for liability and physical damage per
occurrence.
General and other operating expenses as a percentage of operating revenue
were 4.4% during the three months ended September 30, 1999, compared to 5.4%
during the same period in 1998. This decrease was primarily due to the 20.3%
increase in revenue, while many expenses included in general and other operating
expenses are relatively fixed.
Income from operations for the three months ended September 30, 1999
decreased $6.0 million, or 47.7%, to $6.5 million from $12.5 million during the
same period in 1998. As a percentage of operating revenue, income from
operations was 3.6% for the three months ended September 30, 1999 and 8.2% for
the same period in 1998.
Interest expense during the three-month period ended September 30, 1999
increased $.4 million, or 15.1%, to $3.1 million, compared to $2.7 million
during the same period in 1998. This increase was primarily due to the increase
in outstanding debt incurred to finance the acquisition of PST Vans in August,
1998.
14
Comparison of the Nine Months Ended September 30, 1999 to the Nine Months
Ended September 30, 1998
Operating revenue during the nine-month period ended September 30, 1999
increased $105.9 million, or 25.7%, to $518.4 million, compared to $412.5
million during the same period in 1998. U.S. Xpress revenue increased $118.4
million, or 33.3%, due primarily to a 31.0% increase in revenue miles and an
increase in average revenue per loaded mile to $1.193, versus $1.174 in 1998 due
principally to per mile rate increases. Weighted average tractors increased to
4,633 during the nine month period ended September 30, 1999, compared to 3,386
during the same period in 1998, due largely to the acquisitions of Victory
Express in January 1998 and PST Vans in August 1998. CSI/Crown revenues
decreased $12.5 million or 22.2% resulting from a program to eliminate
unprofitable revenues, including the closure of certain non-performing
facilities.
Operating expenses represented 95.1% of operating revenue for the nine
months ended September 30, 1999, compared to 92.5% during the same period in
1998.
Salaries, wages and benefits as a percentage of revenue were 39.0% during
the nine months ended September 30, 1999, compared to 40.7% during the same
period in 1998. The decrease was primarily attributable to an increase in the
number of owner-operators to 501 at September 30, 1999, compared to 432 at
September 30, 1998. All owner-operator expenses are reflected as purchased
transportation. CSI/Crown salaries, wages and benefits decreased 24.6% during
the nine months ended September 30, 1999, compared to the same period in 1998
due to facility closures described above and efficiencies gained through a new
bar-coding process.
Fuel and fuel taxes as a percentage of operating revenue were 13.7% during
the nine months ended September 30, 1999, compared to 13.5% during the same
period in 1998. The increase was primarily due to an increase in the average
cost per gallon of fuel, the effect of which was partially offset by the
increase use of owner operators who are responsible for their fuel expense. The
Company's exposure to increases in fuel prices is managed by fuel surcharges to
its customers and, on a limited basis, by hedges against fluctuations in fuel
prices.
Vehicle rents as a percentage of operating revenue were 7.7% during the
nine months ended September 30, 1999, compared to 5.7% during the same period of
1998. The increase resulted from increased operating leases for tractors to
3,385 and trailers to 4,667 at September 30, 1999, compared to 1,920 leased
tractors and 2,190 leased trailers at September 30, 1998. Depreciation and
amortization as a percentage of operating revenue was 4.1% for the nine months
ended September 30, 1999, compared to 4.3% during the same period of 1998. The
Company includes gains and losses from the sale of revenue equipment in
depreciation expense. Net gains from the sale of revenue equipment for the nine
months ended September 30, 1999 were $.8 million compared to a loss of $.1
million for the same period in 1998. Overall, as a percentage of operating
revenue, vehicle rents and depreciation were 11.8% during the nine months ended
September 30, 1999, compared to 10.0% during the same period in 1998. This
increase was primarily due to a reduction in equipment utilization (revenue per
tractor per week) in the nine month period ended September 30, 1999, compared to
the same period during 1998 and an increase in the ratio of leased revenue
equipment versus owned equipment. Increasing the ratio of leased to owned
revenue equipment effectively shifts financing expenses from interest to "above
the line" operating expenses.
15
Purchased transportation as a percentage of operating revenue was 11.7%
during the nine months ended September 30, 1999, compared to 9.6% during the
same period in 1998. This increase was primarily due to an increase in the
average of the Company's owner-operator fleet to 474 for the nine months ended
September 30, 1999 compared to 134 for the comparable period in 1998. Owner
operator miles increased from 13.0 million in 1998 to 47.7 million miles in
1999. The effect of the increase in owner operators was offset by a $6.1 million
decrease in purchased transportation related to the decrease in revenue and
related purchased transportation by CSI/Crown.
Insurance premiums & claims as percentage of operating revenue was 3.8%
during the nine months ended September 30, 1999, compared to 3.4% during the
same period in 1998. The increase results from an increase effective January 1,
1999 in cargo insurance cost and increases experienced in physical damage and
liability insurance cost related principally to the average cost and frequency
of claims below the deductible amounts for liability and for physical damage per
each occurrence.
General and other operating expenses as a percentage of operating revenue
were 4.8% during the nine months ended September 30, 1999, compared to 5.5%
during the same period in 1998. This decrease was primarily due to the 25.7%
increase in revenue, while many expenses included in general and other operating
expenses are relatively fixed.
Non-recurring charge -- litigation settlement was $1.3 million as a result
of the settlement of litigation with a professional employer organization that
formerly administered the Company's payroll and benefits systems.
Income from operations for the nine months ended September 30, 1999
decreased $6.2 million, or 19.7%, to $25.2 million from $31.4 million during the
same period in 1998. As a percentage of operating revenue, income from
operations was 4.9% for the nine months ended September 30, 1999 and 7.5% for
the same period in 1998.
Interest expense during the nine-month period ended September 30, 1999
increased $2.7 million, or 40.8%, to $9.4 million, compared to $6.7 million
during the same period in 1998. The increase was primarily due to the increase
in outstanding debt incurred to finance the 1998 acquisitions of Victory Express
and PST Vans.
Liquidity and Capital Resources
The Company's primary sources of liquidity and capital resources during the
nine month period ended September 30, 1999 were funds provided by operations,
borrowings under lines of credit, proceeds from sales of used revenue equipment,
and the use of long-term operating leases for revenue equipment acquisitions. At
September 30, 1999, the Company had in place a $225.0 million credit facility
with a group of banks with a weighted average interest rate of 6.5%, of which
$36.1 million was available for borrowing. The loan matures January 15, 2002.
Interest on outstanding borrowings is based on the London Interbank Offered rate
plus applicable margins as defined in the credit agreement. The Company also had
a $10.0 million short-term credit facility at September 30, 1999, all of which
was available for borrowing. In 1999, the Company's primary sources of liquidity
are expected
16
to be funds provided by operations, borrowings under lines of credit, proceeds
from sale of used revenue equipment and long-term operating lease financing for
the acquisition of revenue equipment.
Cash provided by operations was $19.8 million during the nine months
ended September 30, 1999, compared to cash provided by operations of $25.6
million during the same period last year. Net cash used in investment activities
was $.9 million in the nine months ended September 30, 1999, compared to
cash used in investing activities of $104.8 million during the same period in
1998. Of the cash used in investment activities, $56.0 million was used to
acquire additional property and equipment for the nine months ended
September 30, 1999, compared to $86.0 million during the same period of 1998.
The Company used $62.6 million, net of cash acquired, in business acquisitions
in the first nine months of 1998, related to the acquisition of Victory Express
in January 1998 and PST in August, 1998. Net cash used in financing activities
was $22.7 million during the nine months ended September 30, 1999,
compared to cash provided by financing activities of $77.3 million during the
same period of 1998. In the first nine months of 1998, the Company financed the
acquisition of Victory Express and PST Vans and repaid a substantial portion of
its long-term debt with proceeds from the $225.0 million revolving line of
credit established in January 1998.
Management believes that funds provided by operations, available borrowings
under the Company's existing line of credit and long-term operating lease
financing will be sufficient to fund its cash needs and anticipated capital
expenditures through at least the next twelve months.
Inflation
Inflation has not had a material effect on the Company's results of
operations or financial condition during the past three years. However,
inflation higher than experienced during the past three years could have an
adverse effect on the Company's future results.
Seasonality
In the trucking industry, revenue generally shows a seasonal pattern as
customers reduce shipments during and after the winter holiday season and its
inherent weather variations. The Company's operating expenses also have
historically been higher in the winter weather.
Year 2000 Compliance
Some computer systems that use two digits to indicate a year will not be
able to process data properly for the Year 2000. The Company has assessed the
ability of its software and operating systems to function in the Year 2000 and
beyond. A complete comprehensive test of the U.S. Xpress systems for Year 2000
has been completed and such systems are now Year 2000 compliant. Systems in use
at CSI/Crown that were 50% compliant have been remediated, tested, and verified
Year 2000 compliant. Replacement of a non-mission critical system at CSI/Crown
started in the 2nd quarter of 1999 and has a revised implementation date of
November 30, 1999. U.S. Xpress is finalizing Year 2000 compliance status updates
and information from its suppliers and customers. In the event that any of the
Company's significant suppliers or customers do not successfully and timely
achieve Year 2000
17
compliance, the Company's business or operations could be adversely affected.
With that in mind, U.S. Xpress is putting in place a plan to replace those
vendors and/or suppliers that will not be compliant. The costs to the Company in
achieving Year 2000 compliance have not been material and are not expected to be
material in the future.
This report may contain forward-looking statements relating to future
events or the future financial performance of the Company. Such forward-looking
statements are within the meaning of that term in Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such statements may include, but not be
limited to, projections of revenues, income or loss, capital expenditures,
acquisitions, plans for growth and future operations, financing needs or plans
or intentions relating to acquisitions by the Company, as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those set forth in,
contemplated by or underlying the forward-looking statements.
18
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No reports were filed on Form 8-K during the three
months ended September 30, 1999.
(b) Financial Data Schedule (for SEC use only)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. XPRESS ENTERPRISES, INC.
-------------------------------------
(Registrant)
Date: November 15, 1999 By: /s/ Patrick E. Quinn
---------------------------------
Patrick E. Quinn
President
Date: November 15, 1999 By: /s/ Ray M. Harlin
---------------------------------
Ray M. Harlin
Principal Financial Officer
20